Making a game of planning for retirement

ESSSuper has applied behavioural finance theory and gamification technology to create AssistMe, the fund’s new online retirement income planning tool.

OPINION | An ageing population is a demographic trend to which the superannuation industry must respond. An ageing population is a demographic trend to which the superannuation industry must respond. We feel this particularly keenly at ESSSuper, where we’ve noted that our members are living longer than the average Australian.

The fund’s actuary, PwC, has highlighted that the average life expectancy of a male ESSSuper member aged 55 is 90, compared with 87 among the general population, while the average life expectancy of a 55-year-old woman member is 91, compared with 89 population-wide.

Most ESSSuper members are current or past employees of Victoria’s emergency and state services. Many of our older accumulation members are also in a defined benefit plan, which will require them to take a lump sum upon retirement. We recognised a need to support these members in particular more effectively as they transition from their accumulation years, to help them invest and plan for an account-based retirement income stream.

This need to help members think about their retirement account balance as an income source, rather than a lump sum, is a common challenge for the broader industry.

Historically, retirees in account-based retirement products have not had access to the same range of tools and calculators as pre-retirement members and we felt this was a gap. In response, ESSSuper developed our new retirement income stream education tool AssistMe.

Modelling risk

AssistMe is an online tool that provides forecasts of risk-based investment strategies for ESSSuper Retirement Income Stream accounts. AssistMe shows members how each investment strategy might improve their forecast retirement outcomes.

This is something previously considered too complex and intimidating for a sizeable proportion of our members, who previously had limited exposure to market volatility, having been in a guaranteed super environment their entire working lives.

The ‘set and forget’ mentality, which allows members to detach themselves from making decisions about their superannuation, is a challenge for the entire industry.

AssistMe reduces what can be a highly complex decision framework and demonstrates the key financial trade-offs members face. Three investment strategies were designed and linked to a member’s risk tolerance to achieve the following objectives:

Mitigate longevity risk, given the life expectancy of members

Mitigate sequencing risk, given drawdowns and member aversion to market risk

Reduce complexity and make the strategies simple to understand and apply.

The AssistMe strategies are constructed with a bias towards an upward-sloping glide path, which has been supported by academic research and runs contrary to many common post-retirement strategies in the market.

Prospect theory, from the study of behavioural finance, holds that individuals are less likely to risk profits than losses. This theory is evident in the design of the three strategies. The default drawdown sequence encourages members to leave money in risk assets in spite of gains (or losses), by drawing from the more defensive assets first.

Members embrace AssistMe

In the first 5-10 years of retirement, a member will tend to increase their exposure to risk assets, after which time their exposure to them slowly reduces.

AssistMe uses gamification technology and a visual approach to foster better interaction, and enhance the education experience for members. It creates a dynamic and interactive animated sequence centred upon the analogy of a journey. The visualisations demonstrate abstract and complex concepts, such as risk, living standards and financial longevity, as more familiar ideas, such as distance of travel, comfort, road surface and the weather.

We got Retirement Income Stream members actively involved in developing the new tool to ensure the final product met the real-life challenges they face. Since the launch of AssistMe, member feedback has been overwhelmingly positive. We have also observed a change in member behaviour with the use of the AssistMe tool to model investment scenarios, which later results in active changes.

Mark Puli is the chief executive of ESSSuper, a default superannuation fund for emergency services and Victorian government employees.

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